Capital Trade Inc.https://captrade.com
Capital Trade is a consulting firm specializing in antidumping, countervailing duties, economics, and international pricing analysis.Thu, 15 Mar 2018 17:59:59 +0000en-UShourly1https://wordpress.org/?v=4.9.4New Petitions and Complaints Filed at the USITChttps://captrade.com/2018/03/new-petitions-and-complaints-filed-at-usitc/
https://captrade.com/2018/03/new-petitions-and-complaints-filed-at-usitc/#respondMon, 12 Mar 2018 19:52:07 +0000https://captrade.com/?p=5067Under Title VII of the Tariff Act of 1930, U.S. industries may petition the United States International Trade Commission (USITC) and the United States Department of Commerce (DOC) for relief from imports that are sold in the U.S. at less than fair value (i.e. “dumped”), or that benefit from the countervailable subsidies provided by foreign governments (i.e. “subsidized”).[1]

Although it is only March, there have been numerous petitions and complaints filed at the USITC this year. The 701 (countervailing duty) & 731 (antidumping duty) Petitions include the following: [2]

Upon simultaneous filing of a petition with the USITC and DOC, the Commission conducts a preliminary phase injury investigation, which typically must be completed within 45 days of the receipt of the petition.[3] The USITC will find whether or not there is “…reasonable indication that an industry is materially injured or is threatened with material injury”, or whether or not the “…establishment of an industry is materially retarded, by reason of imports under investigation by the Department of Commerce that are allegedly sold at less than fair value in the United States or subsidized.”[4] The determination at this stage determines what the DOC does, because if the USITC determination is affirmative then the DOC continues its investigation, but if it’s negative, the investigation is terminated. There are several exceptions and nuances, which may impact the timeline of the investigation or other aspects of the investigation.[5] The CapTrade timeline tool [here] provides the approximate schedule for AD/CVD investigations.

The process for the 337 Complaints is different. Under Section 337 of the Tariff Act of 1930 the USITC conducts investigations into allegations of certain unfair practices in import trade. The large majority of these investigations revolve around allegations of registered trademark or patent infringement. Other investigations may involve misappropriation of trade secrets, false advertising, violations of antitrust laws, and other allegations of forms of unfair competition.[6]

Compared to petitions, there have been far more 337 Complaints filed this year so far. The 337 Complaints filed in 2018 thus far are listed below:[7]

[3] Commerce can extend its deadline for initiating an investigation, in which case the USITC must make its preliminary injury determination within 25 days after Commerce informs the USITC of the initiation. “Understanding Antidumping & Countervailing Duty Investigations”, United States International Trade Commission, https://www.usitc.gov/press_room/usad.htm.

[5] One possibility is that it may be found by the USITC that imports from a country are negligible, if the imports from a country under investigation amount to less than 3 percent of the volume of all such merchandise imported into the U.S. in the recent 12-month period before the filing of the petition. There are exceptions to this rule. See Title VII of the Tariff Act of 1930 https://enforcement.trade.gov/regs/title7.html.

]]>https://captrade.com/2018/03/new-petitions-and-complaints-filed-at-usitc/feed/0Canada Requests Consultations with the U.S. at the WTOhttps://captrade.com/2018/01/canada-requests-consultations-with-the-u-s-at-the-wto/
https://captrade.com/2018/01/canada-requests-consultations-with-the-u-s-at-the-wto/#respondMon, 29 Jan 2018 20:35:54 +0000https://captrade.com/?p=5005On January 10th Canada circulated to World Trade Organization (WTO) members its Request for Consultations with the United States regarding “Certain Systemic Trade Remedies Measures.”[1] A request for consultations by a member of the WTO formally initiates a dispute.[2]

The WTO dispute system permits consultations for the purpose of finding a solution that is acceptable for the complainant and respondent. During these discussions, the U.S. and Canada may be able reach a solution without turning to litigation, but if consultations have not resolved the dispute after 60 days, Canada may request adjudication.[3]

In its 33-page Request for Consultations document, Canada alleges that the U.S. is inconsistent with numerous WTO obligations, enumerated in the following[4]:

The Liquidation of Final Anti-Dumping and Countervailing Duties in Excess of WTO-Consistent Rates and Failure to Refund Cash Deposits Collected in Excess of WTO-Consistent Rates

The US Treatment of Export Controls in Countervailing Duty Proceedings

The Improper Calculation of Benefit in Countervailing Duty Proceedings Involving the Provision of Goods for Less than Adequate Remuneration

The United States’ Effective Closure of the Evidentiary Record before the Preliminary Determination

The US International Trade Commission Tie Vote Provision

Within these allegations, Canada claims that the U.S. procedures broke the WTO’s Anti-Dumping Agreement, the Agreement on Subsidies and Countervailing Measures, the General Agreement on Tariffs and Trade, as well as the Understanding on Rules and Procedures Governing the Settlement of Disputes. Canada’s annexes cite several allegedly unfair trade investigations between the U.S. and Canada such as lumber and newsprint; Canada also cited cases between the U.S. and other WTO members.[5]

U.S. Trade Representative Robert Lighthizer responded to Canada’s WTO challenge, calling it an “ill-advised attack on the U.S. trade remedies system” and that if Canada were to succeed “…other countries would primarily benefit, not Canada. For example, if the U.S. removed the orders listed in Canada’s complaint, the flood of imports from China and other countries would negatively impact billions of dollars in Canadian exports to the United States, including nearly $9 billion in exports of steel and aluminum products and more than $2.5 billion in exports of wood and paper products.”[6] Indeed, Canada exports billions of dollars in goods and services to the United States each month. The United States typically runs a goods trade deficit with Canada, but that imbalance has declined in recent years, as shown in the figure below.

The Canadian and U.S. economies are closely intertwined. Canada was the United States’ 3rd largest supplier of goods in 2016, and the U.S. imported Canadian services worth nearly $30 billion in 2016.[7] Of course, the trade relationship runs both ways—Canada was the United States’ largest export market for goods in 2016.[8] The U.S. exported almost $54 billion in services to Canada, as shown in the table below.[9] In 2016 the U.S. had a trade surplus with Canada for goods and services combined of about $7.7 billion.[10] Including income receipts and payments, the U.S. trade surplus with Canada was about $12.7 billion.[11] Bilateral investment flows and stocks are also high. Canada’s direct investments in the United States totaled $51.9 billion in 2016, whereas the U.S. direct investment in Canada were $18.1 billion.[12]

[table id=50 /]

Data Source: Bureau of Economic Analysis, Table 1.3 U.S. International Transactions, Expanded Detail by Area and Country (Canada).

Trade discussions between the U.S. and Canada revved up quickly this year, and the trade relationship between the two countries may be changing. U.S. and Canadian officials met in multiple arenas in January 2018—the World Economic Forum (WEF), the NAFTA renegotiations, and at the WTO. Last week, President Donald Trump and his international economic team traveled to Davos, Switzerland to attend the annual WEF meeting.[13] U.S. Trade Representative Lighthizer[14] and economic officials from Canada and Mexico were also present.[15] On January 23rd, the sixth round of NAFTA talks began in Montreal. [16] Potential revisions to the agreement, precipitated by the U.S., have not been received well by the Canadian and Mexican governments. [17] Meanwhile, Canada’s dispute with the U.S. at the WTO is ongoing, and awaiting a formal response from the U.S. These parties certainly have a lot to talk about.

In a recent post, we explored the impact of a proposed Border Adjustment Tax on the dumping margin calculated by the Department of Commerce in trade remedy investigations. In this installment, we explore the impact of the BAT on injury investigations at the U.S. International Trade Commission. For a more complete discussion of the BAT and its potential impacts on global trade flows and exchange rates, please see the first post.

The Border Adjustment Tax (BAT) proposed in the House Ways & Means Committee would have significant implications for the injury phase of trade remedy investigations conducted by the U.S. International Trade Commission (USITC).[1] The BAT would have two primary effects related to USITC investigations. First, it would raise the after-tax cost of imports relative to domestically produced goods. Second, the BAT is likely to cause an appreciation of the U.S. dollar, though economists differ on the degree of the exchange rate adjustment. Both of these changes would create confounding factors for the typical assessments made by the USITC: price effects of subject imports, quantity effects of subject imports, and financial effects on the domestic industry.

In terms of USITC investigations, the BAT’s complications can be placed in two categories. First, some measures traditionally collected and relied on by the USITC in its injury assessments should not be fundamentally altered; however, a one-time change in the corporate tax regime will create a one-time change in important trend lines. Unless the USITC adjusts its analysis to account for these one-time changes, the switch from a conventional corporate income tax to BAT could skew the outcomes. USITC investigations and reviews are conducted over three-year periods of investigation (“POI”) and five-year periods of review (“POR”), respectively. For investigations and reviews where the BAT policy change occurs in the middle of the POI or POR, the USITC will need to account for breaks in the data owing to different accounting standards applied in different years. Second, some traditional USITC “indicia” of injury may need to be adjusted both in the near and long term. Examples include the underselling analysis and U.S. industry profitability assessments.

Price Effects

A BAT is likely to affect the Commission’s analysis of price effects. When the Commission examines price effects of the subject imports, it considers the extent to which the subject imports are priced below sales by the domestic industry at the same level of trade. As set forth below in the simple example, if a domestic producer sells its product for $100 and the importer sells the subject merchandise for $80, the underselling margin is 20 percent.

U.S. Producers Price

Subject Imports Price

Underselling Margin

%

Sales price

$100.0

$80.0

$20.0

20%

The Commission also considers whether the lower priced imports depressed the prices of the domestic like product or prevented domestic producers from increasing prices in response to higher costs.

Since the BAT does not directly affect the price of the subject import, a BAT would not change the margin of underselling. What the BAT does, however, is complicate the interpretation of whether the magnitude of underselling is significant. The impact of the BAT is indirect. As shown in the table below, an underselling margin of 20 percent without the BAT means that purchasers of the dumped imports save $20 per unit. With a BAT, purchases of the subject imports are not deductible. The purchaser saves $20 per unit on the domestic product because it is deductible, but saves $0 dollars on the subject import. Thus, with a BAT the net costs of the domestic product and the subject import are both $80, despite the fact that the underselling margin is 20 percent.

After Tax Cost

U.S. Producers

Subject Imports

Without BAT

$100.0

$80.0

With BAT

$80.0

$80.0

This wedge between the sales price and net cost to the purchaser may require the Commission to recalibrate what it deems to be significant underselling. A 20 percent margin is normally considered significant, but with the BAT as currently envisioned, a 20 percent margin would provide no competitive benefit to the dumped merchandise. Alternatively, the Commission may have to adjust the underselling analysis for differential tax effects.

As discussed in the previous post, economists believe some appreciation of the dollar is likely if the United States imposes a BAT. [2] Dollar appreciation could potentially lead to even larger margins of underselling, depending on the currency of the exporting country and the extent to which the dollar’s appreciation is passed through to the U.S. price. If the dollar appreciates to offset the 20 percent BAT, foreign exporters could reduce their prices in U.S. dollars while earning the same or more revenues in their home currencies. For an export from Japan valued at ¥8,000, the U.S. price is $80 at an exchange rate of ¥100/$ and $66.67 at an exchange rate of ¥120/$. As the table below shows, the underselling margin for exporters from countries who pass through none of the change in the value of the dollar and exporters from countries whose currencies are linked to the dollar will remain 20 percent. As firms pass through changes in the value of the dollar by reducing the U.S. price, the margin of underselling increases.

Price (U.S.$)

Underselling

U.S. Producers

Subject Imports

Margin

%

With BAT, 20% appreciation

No ExRate Offset

100

80.0

20.0

20%

Partial ExRate Offset

100

72.7

27.3

27%

Full ExRate Offset

100

66.7

33.3

33%

This analysis suggests that the BAT currently being considered is likely to have two effects on the Commission’s underselling analysis. First, the Commission will either have to adjust for differential tax effects, or reassess what it deems to be a significant magnitude of underselling because the non-deductibility of imports dilutes the competitive effects of underselling. Second, to the extent that the BAT leads to dollar appreciation, the underselling margins for some exporters are likely to increase. Taken together, these effects suggest that the magnitude of underselling could become more volatile — especially during the transition period, when prices and exchange rates are adjusting for the change in tax regime — and thus a less reliable barometer of the subject imports’ price effects on the domestic industry.

Quantity Effects

The BAT would make the exports of U.S. producers tax-deductible. If the exchange rate adjustments do not result in a complete offset of the BAT effect, U.S. industries would be incentivized to increase exports relative to shipments to the U.S. market. The degree to which U.S. industries shift to an export focus will vary significantly by industry and firm, but such shifts could create distortions in the USITC’s conventional approach to assessing the effect of subject imports.

One standard assessment made by the USITC in injury investigations is whether the subject imports had an effect on the domestic industry’s volume of production and U.S. shipments. For example, if subject imports from a given country increase over the period of investigation and the domestic industry’s U.S. shipments decrease, it would appear, at least at first glance, that the subject imports are causing the domestic industry to lose out on sales volume.

The issue created by the BAT, however, is that these same trends would be present in an industry where domestic producers have shifted to an export focus, even if subject imports were having no injurious effect. To the contrary, a greater volume of subject imports might be demanded by the U.S. market precisely because there is less domestic supply to go around.

While the USITC already collects data on exports shipments in its investigations and sunset reviews, any changes in domestic industry behavior would complicate the Commission’s task, especially if the domestic industry’s capacity utilization is high.

Financials Effects

Nominally, the BAT will not affect the financial data collected from domestic producers because all financial measures used by the USITC (gross profit, operating profit, net income) are measured before taxes. Thus, the change in tax policy will not affect the standard measures of profitability.

However, the increased incentives to export may create significant changes in the structure of certain industries. For example, firms may shift their focus from selling a (relatively) undifferentiated product in the United States to exporting high value added products, resulting in lower domestic sales that coincide with increased after-tax profitability. Overall, U.S. industries may appear to be less profitable at the operating level; however, the change may be attributable to a shift from domestic to export shipments, in order to earn the higher after-tax profits on sales in export markets. To isolate such factors in its assessment of financial performance, the Commission may wish to begin collecting financial data separately for U.S. producer domestic and export sales. This has been done in select cases in the past, such as in Grain-Oriented Electrical Steel from Germany, Japan, and Poland in 2014. Petitioners who are major exporters or who increase their export activities due to the BAT should be prepared to supply this information.

Another possible consequence of the BAT is that it would result in one-time increases in the pre-tax cost of goods sold, as U.S. producers shift from imported inputs to more expensive domestic inputs that generate tax deductions below the operating profit level. Such a shift would make it more difficult for the Commission to determine whether price suppression is the result of the subject imports or a consequence of the BAT. One way to isolate such financial effects would be to split domestically-sourced and imported inputs in the cost of goods sold line on the USITC’s traditional financial results template.

Alternatively, the USITC may want to place more emphasis on after-tax profitability in assessing domestic industry trends. Traditionally, the USITC has avoided after tax profitability measurements because they are subject to manipulation and do not make for apples-to-apples comparisons across firms or years. However, the cash flow tax currently under consideration could eliminate much of the underlying differences in tax outcomes. According to its proponents, the new system is supposed to make taxation simpler and more uniform. If this is in fact the case, the rationale for eschewing after-tax profitability could be greatly mitigated if deductions related to capital expenditures are excluded.

Conclusion

The proposed BAT would influence industry investigations at the USITC in several ways, some of which would cause the Commission to request additional data and possibly revise its traditional analytical methods. The analysis of volume effects would require the Commission to consider whether any decline in domestic industry volume and market share is due to incentives that favor export sales over domestic sales. The analysis of price effects would need to take into account that the BAT creates a wedge between the sales price of domestically produced goods and their after-tax cost to purchasers. If the cash flow tax is 20 percent and only domestic purchases are deductible, then an underselling margin of 20 percent provides no competitive benefit to subject imports used in the production process. On the other hand, if the dollar appreciates after the imposition of the BAT, underselling margins may rise as the competitiveness of imports increases. The BAT would also influence the Commission’s impact analysis because changes in pre-tax profitability may reflect a shift to higher margin export sales, thereby masking adverse effects of subject imports. The Commission would have an interest in collecting financial data that isolates the injurious effects of imports from more profitable export sales.

Notes

[1] The USITC is charged with assessing whether a domestic industry in the United States has been injured, or is under threat of being injured, by imports of a particular product from a subject country or group of subject countries.

[2] Some economists believe that the U.S. dollar will appreciate to neutralize the effect of the BAT on trade flows. Other economists believe that the appreciation, if it occurs, would be unpredictable in magnitude and timing. Hufbauer and Lu of the Peterson Institute for International Economics provide a review of the literature here.

This post is the first in a two-part series on the effect of the proposed Border Adjustment Tax on trade remedy investigations in the United States. The first post assesses the impact on the calculation of anti-dumping duty rates at the Department of Commerce. For a look at the effect on injury investigations at the U.S. International Trade Commission, please see the second post.

As part of its proposed corporate tax reform, the Republican House Ways and Means Committee has adopted a border adjustment tax (BAT) that would dramatically alter the taxation of exports and imports. While President Trump has criticized the plan as “too complicated,” he offered vague support for the concept in his recent address before a joint session of Congress. The proposed tax plan has the potential to influence U.S. trade remedy investigations, which depend on the prices at which imported products are sold in the U.S. market and home market prices. This blog examines how the BAT might affect one aspect of U.S. antidumping investigations: the calculation of dumping margins by the Department of Commerce.[1]

What is a BAT?

The BAT is just one aspect of the tax plan developed by House Republicans that would replace the current corporate tax rate of 35 percent with a cash flow tax of 20 percent. The proposed tax would be “destination-based,” meaning that taxes are imposed based on the location of the final sale, as opposed to the current U.S. system based on the product’s origin. Cash flows from exports are exempt from the new tax, while expenditures on imports would be non-deductible.

The table below illustrates the effect of the BAT on the costs and revenues of domestically produced goods, imports, and exports after accounting for taxes. With fixed exchange rates and other simplifying assumptions, the after-tax cost of $100 of a domestically produced good is only $80, whereas an equivalent imported good is $100. At the same time, the revenue received by an exporter of the same good is the full $100 while the same good sold domestically would generate only $80 in after-tax revenue.

Table 1: Basic Illustration of the BAT

Source of input

Cost

After-tax cost

Domestic

$100

$80

Imported

$100

$100

Type of sale

Revenue

After-tax revenue

Domestic

$100

$80

Export

$100

$100

Relative to the current system, a domestic firm would be incentivized to purchase more domestic inputs and a seller would be incentivized to export rather than sell to the U.S. market. At first glance, both changes would appear to promote U.S. production and improve the U.S. trade balance. There is considerable uncertainty, however, regarding the practical trade flow consequences of such a tax regime, if it were to be actually implemented.

How Would a BAT Impact Trade Flows?

As an initial matter, many of the largest U.S. trade partners, including China, the European Union, and Mexico, already exempt exports as a part of their value added tax (VAT) systems. The cost of U.S. imports from VAT countries selling for $100 in those markets would be $80 in the United States and have an advantage over U.S.-produced goods selling for $100 here. Reform advocates (for example, here and here) argue that a VAT distorts trade and a cash flow tax with a border adjustment would not be any different. However, both of these points are debatable: many economists believe a VAT does not distort trade flows, and the distinctions between a VAT and a BAT are relevant. It is also unclear if the BAT conforms to WTO standards. This blog does not attempt to resolve these issues here, but in fairness to the reform advocates, their argument is not for the United States to get a leg up on the competition, but to level the playing field. Whether or not that is actually the case is an open question.

Perhaps the most important – and least understood – effect of the proposed BAT is its impact on currency exchange rates. In theory, the imposition of the BAT should place upward pressure on the U.S. dollar, causing an appreciation which would neutralize the predicted financial benefit to U.S. exporters and detriment to U.S. importers. If the exchange rate adjustment was sufficiently large, the BAT would have no impact on the U.S. trade balance at all. The appreciation in the U.S. dollar relative to other currencies would offset the border adjustments’ advantage to exports and disadvantage to imports. However, the magnitude and speed of the exchange rates adjustment is a matter of considerable debate among economists.

In a recent policy brief, Gary Hufbauer and Zhiyao Lu of the Peterson Institute for International Economics review the literature on the exchange rate and trade effects of border adjustments. They summarize the methods and results of ten studies from economists and investment banks over the past fifteen years. Studies can generally be placed in two groups: 1) those that simply assume a complete exchange rate offset; and 2) those that empirically test the degree and timeliness of the exchange rate adjustment, and find that the offset would be incomplete and/or slow.

While the findings of the latter group seem more plausible, it is noteworthy that both groups of studies imply at least some appreciation is likely if the United States adopts a BAT. Below we examine how a stronger dollar is likely to affect antidumping duty rates.

Impact on Trade Remedy Investigations

It is important to note that the border tax adjustment regime would not generate a new downward adjustment to U.S. prices for imports. The BAT as currently envisioned taxes imports and domestic inputs differently; however, the tax is actually assessed at the time of the sale of the final product. The sale to the first unrelated U.S. purchaser (the basis for the antidumping calculation) will be exclusive of the BAT. Thus, the biggest impact on potential duties lies in the effect of the BAT on currency movements.

Having stated the above caveats, the studies reviewed by the Peterson Institute suggest that the imposition of the BAT should lead to some appreciation of the U.S. dollar, especially in the long run. While one cannot be certain of the magnitude and timing of the adjustment, a sustained appreciation in the U.S. dollar would have important consequences for U.S. trade remedy investigations, in particular the calculation of the dumping margin.

In antidumping investigations, the Department of Commerce is charged with assessing the degree to which the subject product is dumped in the U.S. market. The U.S. Price, the price of a country’s exports to the United States, is compared to a product’s Normal Value. In cases involving imports from market economies, Normal Value is simply the sales price in the home market. In cases involving “non-market economies,” (NMEs) primarily China and Vietnam, Normal Value is calculated based on imported unit values in a surrogate country, typically Thailand. [2]

The potential impact of a BAT on the antidumping duty rate is best viewed through the margin rate formula:[3]

Margin Rate = (Normal Value – US Price) / US Price

Where Normal Value is the observed or estimated price of the product in the home market and US Price is the price of the exported product sold in the United States. As can be seen from the formula, an increase in the U.S.Price holding Normal Value constant reduces the antidumping rate by reducing the numerator and increasing the denominator. In contrast, an increase in Normal Value holding the U.S. Price constant increases the rate by increasing the numerator.

A stronger dollar means a lower duty rate. For example, say a Japanese producer of hot rolled steel price discriminates by exporting steel to the United States at ¥5,000 per ton and selling the same steel in Japan for ¥5,500 per ton. If Japanese steel is under a U.S. antidumping order and the exchange rate is ¥100 per dollar, the antidumping margin is 10 percent, as shown in the table below.

Table 2: Impact of a Hypothetical Dollar Appreciation on the Margin of a Japanese Steel Producer

Yen price

(no BAT)

ExRate = ¥100/USD

Yen price (w/ BAT)

ExRate = ¥110/USD

Normal Value

¥55,000

$550

¥55,000

$500

U.S. Price

¥50,000

$500

¥55,000

$500

Margin

¥5,000

$50

¥0

$0

Duty Rate

10%

10%

0%

0%

Assuming that the BAT results in a 10 percent dollar appreciation to ¥110 per dollar, Normal Value (i.e., the price in Japan) declines to $500 per ton. Thus, the exporter no longer needs to price discriminate in order to compete in the U.S. market at $500 per ton. As shown in the table above, the Japanese producer can raise the yen price of its exports to ¥55,000 per ton and the duty rate disappears.

However, basic economics suggests that second order effects may influence the extent of the decline. Although inputs purchased in Japan are now cheaper in dollar terms, the marginal cost of production is likely to increase in yen terms because dollar appreciation increases the cost of imported inputs purchased in dollars. The resulting upward shift in the supply curve will increase the home market price (Normal Value). While it is unclear from this example what the margin will be, if the Japanese producer wishes to maintain its $500 per ton price in the U.S. market, it is clear that the duty rate following a BAT-induced appreciation is likely to be less than 10 percent.

The implication of this example is that the impact of a stronger dollar on the Normal Value and U.S. Price will vary by national and industry characteristics:

The change in the dollar exchange rate for a given subject country or, in the case of non-market economies, the surrogate country

The subsequent adjustments in the subject country’s currency relative to other currencies

Whether the subject country is a market economy or a non-market economy

The industry and market structures in the subject/surrogate country and the United States

The ultimate form of the BAT

Exchange Rates in the Subject/Surrogate Countries Relative to the Dollar

The discussion above assumed a general strengthening of the dollar against global currencies, but exchange rate effects for particular currencies will be heterogeneous. Countries with floating exchange rate regimes would see a weakened currency in line with the market. Countries with fixed exchange rates pegged to the dollar would face a choice of: a) using their foreign reserves to push against depreciation, b) accepting a one-off adjustment and pegging to the dollar at a new level, or c) some combination of the two. Thus, the variety in exchange rate regimes will lead to different outcomes among the currencies of U.S. trading partners, and therefore different impacts on duty rates.

Exchange Rates in the Subject Country Relative to Its Trading Partners

The heterogeneous exchange rate effects of a BAT imply that cross rates among U.S. trading partners will also vary. These exchange rate movements are important because countries vary in their sources of inputs for products eventually sold to the U.S. market. If these inputs become cheaper in dollar terms, the U.S. Price in the margin calculation may decrease at the same time Normal Value decreases, mitigating the effect on the dumping margin, as described above. For example, compare Japan and the European Union. [4] While both the yen and euro are allowed to float, the mix of exchange rate regimes in their major import partners are different. Japan’s largest source of imports is China. If China maintains its value with respect to the dollar, the cost of these inputs will remain constant in dollar terms and increase in yen terms. In contrast, European countries’ largest trading partners are other European countries that use the euro. The price of European inputs would therefore mostly decrease in dollar terms and remain constant in terms of the euro, thereby limiting the decrease in the dumping margin. In the table below, the dollar appreciates by 10 percent versus the yen and the euro. However, the Japanese steel producer is assumed to purchase 20 percent of its inputs in dollars or currencies linked to the dollar, while the EU exporter purchases only 10 percent of its inputs in dollars. The margins and duty rates of both exporters decrease, but the EU exporters’ margin declines by a greater amount.

Table 3: The BAT’s Varying Effect on Trade Partners

Yen price (no BAT)

ExRate = ¥100/USD

Yen price (with BAT)

ExRate = ¥110/USD

Japanese Inputs

¥44,000

$440

¥44,000

$400

Dollar-based Inputs

¥11,000

$110

¥12,100

$110

Total Normal Value

¥55,000

$550

¥56,100

$510

U.S. Price

¥50,000

$500

¥55,000

$500

Margin

¥5,000

$50

¥1,100

$10

Duty Rate

10%

10%

2%

2%

Euro price

(no BAT)

ExRate = $1/Euro

Euro price

(with BAT)

ExRate= $0.909/Euro

EU Inputs

€ 495

$440

€ 495

$450

Dollar-based Inputs

€ 55

$110

€ 60.5

$55

Total Normal Value

€ 550

$550

€ 555.5

$505

U.S. Price

€ 500

$500

€ 550.0

$500

Margin

€ 50

$50

€ 5.5

$ 5.0

Duty Rate

10%

10%

1%

1%

Market vs. Non-Market Economies

For non-market economies (NME), namely China and Vietnam, the Normal Value is calculated based on a surrogate country (typically Thailand), while the U.S. Price is calculated the same way as market economies.[5] Both China and Vietnam have exchange rates linked to the U.S. dollar, while the Thai baht is allowed to float.[6] For an NME like China, this means that the margin will be influenced by the impact of dollar appreciation on Thai-sourced inputs (wages and electricity) and Thai imports. As shown in the table below, dollar appreciation would reduce the value of Thai-based surrogate values. This would reduce Normal Value and the margin. For imports from the United States and countries linked to the dollar, the cost in baht would rise, but the depreciation of the baht leaves the cost unchanged in dollar terms. For imports from countries with floating currencies, any dollar appreciation resulting from a BAT would reduce the dollar value of the inputs and therefore reduce Normal Value and the margin. Assuming that China manages an appreciation that matches that of the dollar and holds the U.S. price at $500, the antidumping duty rate declines from 10 percent to 4.1 percent.

Table 4: The Impact of the BAT on Constructed Value for Non-Market Economies

Baht/CNY price (no BAT)

ExRate =

THB 35/USD CNY 7/USD

Baht/CNY price

(with BAT)

ExRate =

THB 38.5/USD CNY 7/USD

Thai Valued Inputs

THB 3,500

$100

THB 3,500

$90.9

Dollar-linked Inputs

THB 7,875

$225

THB 8,663

$225.0

Floating currency Inputs

THB 7,875

$225

THB 7,875

$204.5

Total Normal Value

THB 19,250

$550

THB 20,038

$520.5

CNY 3,850

CNY 3,643

U.S. Price

CNY 3,500

$500

CNY 3,500

$500.0

Margin

CNY 350

$50

CNY 143

$20.5

Duty Rate

10%

10%

4.1%

4.1%

Market Structure and Pass Through

Market structure in the home and U.S. markets will also play a role in how the BAT influences the margin. If the home market is competitive (no producer’s output decision can influence the home market price), then Normal Value will not change in terms of the home currency. This is the case in Table 2. If the exporter has market power in the home market (i.e., faces a downward sloping demand curve), the increase in marginal cost may lead to an increase in the home market price that would offset some of the decline in the margin caused by the appreciation, similar to the dynamic in Table 3.

Producers may also vary in the extent to which they pass on the benefit of dollar appreciation to U.S. consumers in the form of lower prices. In each of the scenarios above, the producer is assumed to keep the U.S. price in dollars unchanged. If increasing its U.S. market share is important to the Japanese exporter in Table 2, it may decide to pass on the benefit of the weaker yen to U.S. consumers by reducing the U.S. price. This would have the effect of increasing the with-BAT margin above the level shown in Table 2.

Typically, the degree of exchange rate pass through depends on the nature of the product and industry. If price is the most important factor in a consumer’s purchasing decision, such as for commodity products, the Japanese producer will likely choose to lower prices and increase sales. If other factors drive purchasing decisions, the firm would choose to maintain prices. This would likely be the case for differentiated products such as high-end branded goods.

The degree of pass through would also be influenced by the BAT itself. With the loss of deductibility, imports would be relatively less attractive to U.S. businesses. In price competitive markets, the hypothetical Japanese producer would likely need to reduce the U.S. price or risk losing sales to existing customers. This price reduction would partially offset the decrease in the margin caused by the stronger dollar.

The Form of the BAT, as Implemented

Finally, it should be noted that the ultimate form of the BAT will have important consequences. At the time of this writing, the proposed cash flow tax would make domestic labor deductible while foreign labor would not be deductible. This is a critical distinction from the value added taxes employed by other countries, and would influence the anticipated trade and exchange rate effects discussed above.

Conclusion

As a technical matter, if the BAT does increase the value of the dollar, existing antidumping duties are likely to decline. However, the magnitude of that decline depends on a number of factors, including the extent of the appreciation, the share of production inputs from countries with currencies linked to the dollar, market structure, and pass through.

At the time of this writing, the BAT was facing significant push back and seemed unlikely to become law, at least in its current form. But other types of tax reform, including the VAT, that rely on border adjustments also may lead to dollar appreciation, which would tend to reduce dumping margins.

Notes

[1] An upcoming blog will assess the potential impact of the BAT on the injury phase of antidumping investigations at the U.S. International Trade Commission.

[2] The calculation of the dumping margin should not be confused with the underselling analysis conducted by the International Trade Commission in the injury phase of trade remedy investigations. Where the dumping margin compares the price of U.S. imports to the price in a foreign country, the ITC’s underselling analysis compares the U.S. price of the domestic product to the U.S. price of the imported product. A BAT and resulting dollar appreciation would also affect the results of the underselling analysis, but in different ways.

[3] This formula simplifies the margin calculation by assuming one product. In practice, the margin is calculated as a weighted average based on the U.S. prices (also known as the export price), normal values, and quantities of multiple products.

[4] This example assumes that both Japan and the EU increase home market prices to reflect increases in marginal costs. By assumption, 20 percent of Japan’s inputs are tied to the dollar while only 10 percent of EU inputs are tied to the dollar.

[5] “Market Economy” and “Non-Market Economy” status are classifications determined by the Department of Commerce for the purpose of the dumping margin methodology. While other countries such as Cuba and North Korea could potentially be treated as non-market economies, only China and Vietnam have recent trade remedy investigations.

[6] Inputs imported from countries with floating exchange rates will get cheaper, but this is true of other countries as well.

The referendum for the British exit from the European Union (EU), or ‘Brexit’, was passed on June 23, 2016. Reactions to Brexit underlined a great deal of uncertainty about Europe’s political and economic future. In the United Kingdom, new Prime Minister Theresa May and her Conservative Party cabinet now face the daunting task of re-establishing the United Kingdom’s political and economic partnerships. The EU must renegotiate its relationship with the UK, while remaining firm on political positions that are unpopular among many British voters. Beyond the political sphere, the British economy endured Brexit’s initial shocks, but its economic future depends heavily on Prime Minister May’s success with economic partnerships. Many are not optimistic; the International Monetary Fund lowered estimates of Britain’s GDP growth forecast for 2017 by 0.9 percentage points to 1.3 percent, while many European countries were revised downward as well.

Although Europe remains the epicenter of Brexit’s economic and political instability, the United States is not insulated from the shocks felt across the water. In a meeting with the Senate Banking Committee following Brexit, Federal Reserve Chair Janet Yellen commented that the Fed is carefully monitoring global conditions as the Brexit vote could have “significant economic repercussions” on the United States. Although this started as a European issue, Americans should be aware of Brexit’s economic effects. To help, we summarized some of the anticipated effects of Brexit on the U.S. economy and trade outlook.

1. Current and continuing instability in Europe, an important U.S. trading partner

The European Union (EU) is a significant trade partner for the United States, and will still remain so after Brexit. In 2015, American exports of goods to the EU totaled $273 billion and goods imports totaled $426 billion. Together, the EU ranks as the 2nd largest export market and supplier of imports to the United States. The United Kingdom accounted for 12 percent of exports to the EU and 10 percent of imports from the EU in 2015.

Economically, Brexit adds uncertainty and volatility to an already weak European economy. In 2015, overall GDP growth in the EU was only 1.7 percent. The main restraints on growth are the lingering effects from the most recent financial and economic crises, including high levels of debt and unemployment. In 2015, EU member states had a gross public debt around 93 percent of the GDP, and unemployment at around 11 percent. Weak investment, unfavorable business environments, and public administration inefficiencies are among other issues that require structural reform and economic policy. The United Kingdom leaving the EU, in its time of slow recovery, will further delay economic stability and consistent growth.

Source: Eurostat

Britain is not the only country considering an exit from the EU. Riding the tailwinds created by Britain, Italy’s most popular political party, the populist Five Star Party, is in favor of exiting the European Union in a referendum on constitutional reform in October. The Guardian’s Stephanie Kirchgaessner reports that “the referendum is increasingly being seen as a way for Italians to air their general discontent with the establishment.” If the referendum results favorably for the Five Star Party, “Quitaly” could very well be the next major exit for the EU. Other populist movements criticizing the EU are gaining traction in France, Sweden, and the Netherlands.

2. Effects on the Exchange Rate and Wall Street

The political instability in Europe following the Brexit vote creates negative externalities for all European economies and their international trade partners. Brexit alone will not drag the U.S. economy into a recession, but a Brexit-induced recession in the UK and continued stagnation in the EU will diminish global growth prospects and influence U.S. economic performance.

The Brexit vote initially caused skittish investors to pull out of European markets and pour into the United States. Correspondingly, the pound dropped significantly, reaching its lowest point relative to the dollar since 1985. More than two months later, the pound has not recovered and is currently trading at 13 percent below its value against the dollar in January of this year.

Source: Federal Reserve Bank of St. Louis.

The appreciation of the dollar against the pound and euro suppresses global demand for U.S. exports, while increasing the competitiveness of imports compared to companies that produce in the U.S. As a result, many economists are changing their projections for global and domestic growth. The International Monetary Fund cut 2016 GDP growth projections for the United States by -0.2 percentage points to 2.2 percent. Political and economic uncertainties are the driving force behind these more pessimistic projections. The combination of a stronger dollar and weaker global growth, particularly in the economies of our major trading partners, will be a drag on U.S. exports, and many domestic industries.

A continuation of the current low-rate environment is good for asset prices in the United States, but the trade effects stemming from dramatic exchange rate movements, along with the general uncertainty caused by Brexit, will harm other areas of business. Likely beneficiaries of Brexit, at least in the short-term, include Wall Street and the U.S. government debt- both of which will benefit from higher U.S. asset prices and lower interest rates. On the other hand, the rising dollar and slower global growth hurts U.S. exporters and producers, making the Fed’s job more difficult.

3. A UK and U.S. Trade Deal?

Since the Brexit, several U.S. politicians have floated the idea of a US-UK free trade agreement (FTA). Republicans such as House Speaker Paul Ryan (R-Wi.) and Senator Johnny Isakson (R-Ga.). However, President Obama made clear that an FTA with the UK would move to “the back of the queue.” Politics aside, the question is whether a U.S.-UK FTA makes economic sense.

If the U.S. and UK ever do negotiate a Free Trade Agreement (FTA), the typical points made by FTA critics would be far less potent. Critics of FTAs often cite potential problems including enlarging the trade deficit, foreign currency manipulation, and loss of U.S. manufacturing jobs due to competition from low-wage workers. However, U.S. trade with the UK is relatively balanced, UK wages are comparable to U.S. wages, and nobody is accusing the UK of currency manipulation. Considering these points, a U.S.-UK FTA would probably be less controversial and easier to negotiate, compared to other recent U.S. trade deals such as the Korea-US FTA and the Trans-Pacific Partnership.

It is possible that a U.S.-UK FTA could improve the already strong trade relationship between the UK and U.S. FTAs are designed to foster and open trade flows; enhance competitiveness of a country’s exports to its trading partner; eliminate tariffs and other barriers that impeded the flow of goods and services; and build framework that protects trade-related issues (i.e. intellectual property, environmental and labor protections, and other legal issues). An FTA with the UK could make U.S. products even more attractive. The UK already buys billions of dollars in planes, helicopters, spacecraft, refined petroleum, medical products, and a wide variety of other American goods. Although the U.S. has run trade deficits with the UK since 2011, bilateral trade is far more balanced than U.S. trade with many other countries. For 2016 so far, the U.S. is running a trade surplus with the UK, according to data from the Census Bureau. The trade balances for the previous 15 years are shown in the graph below, from U.S. Census Bureau data:

Source: U.S. Census Bureau.

A FTA with the UK is not the only option. The U.S. could pursue a Bilateral Investment Treaty (BIT), a Trade in Services Agreement (TiSA), or a Trade and Investment Framework Agreement (TIFA) in lieu of a FTA with the UK. BITs, for example, help protect private investment, in order to develop market-oriented policies in partner countries, while promoting U.S. exports.

TiSAs is a trade initiative focused on fair and open trade across service sectors. Currently 23 parties are participating in TiSA, including the European Union. When the UK is no longer part of the EU, it will have to decide whether to join TiSA. From the U.S. perspective, the UK will hopefully join TiSA because the agreement benefits the U.S. through increased transparency and effective regulatory policies, such as restricting cross-border data flows that can disrupt services trade over the internet.

TIFAs provide frameworks and principles for dialogue on trade and investment. The U.S. has dozens of these treaties, with countries or regions around the world including Asia, Europe, Latin America, Africa and the Middle East. Some of the important benefits of TiFAs include:

Cooperation between parties on trade and investment

Reduction of barriers to trade and investment, such as non-tariff barriers

Agreement on specific trade and investment matters

Increased trade transparency

Increased foreign direct investments, and private sector investment.

Ultimately, even without an FTA, the UK will continue to receive most favored nation treatment (MFN) and be subject to MFN duty rates in the United States, as was the case before Brexit. Whatever the outcome of potential trade negotiations, the U.S. and UK will remain strong trade partners.

Conclusion

Brexit has exacerbated political and economic instability within the United Kingdom and in the rest of Europe. Based on recent projections, global growth is likely to suffer as well, with both positive and negative consequences for the U.S. economy. However, Brexit also presents an opportunity to enhance the special relationship between the United States and Britain. Only time will tell what type of trade deal the U.S. might achieve with the UK, how investors will behave, and where the exchange rate will go. As the British say, we’ll prepare for the worst, but hope for the best.

[1] Data comes from the Office of National Statistics, and the Office of Statistics in Scotland.

]]>https://captrade.com/2016/08/three-reasons-why-the-u-s-should-care-about-brexit/feed/0Reviewing the 2015 Trade Numbershttps://captrade.com/2016/03/reviewing-the-2015-trade-numbers/
https://captrade.com/2016/03/reviewing-the-2015-trade-numbers/#respondThu, 10 Mar 2016 20:04:26 +0000https://captrade.com/?p=4303Full-year 2015 trade data from the United States International Trade Commission are now available. To celebrate, we review some of the most important big-picture developments in U.S. trade from the previous year.

The graph below is a snapshot of the U.S. trade balance in 2015. The six basket categories are based on 1-digit end-use classifications used by the Bureau of Economic Analysis. [1. BEA end-use codes are used in International Transactions Accounts and the National Income and Product Accounts. These data are publicly available at the U.S. International Trade Commission’s DataWeb: https://dataweb.usitc.gov. Unless stated otherwise, these data are the source for all figures in this post.] As there is significantly more shaded area below the line than above it, one can see that the United States ran a trade deficit in 2015, as it has every year since 1975.[2. Bear in mind that the graph and all data in this article are related to the U.S. trade in goods. Services, a sector in which the United States runs a trade surplus, is excluded.] Overall, the trade deficit in goods was approximately $930 billion, or 1.3 percent of gross domestic product.

The breakdown of U.S. trade surpluses and deficits is fairly simple regarding goods. The United States does well in capital- and technology-intensive industries (think high-tech metals, chemicals, and airplanes) and many agricultural products but runs a huge deficit in labor-intensive and cost-sensitive products (think of anything you can buy in WalMart).

Comparing 2014 and 2015, U.S. exports decreased by 7.9 percent while imports decreased by 4.3 percent, leading to a 1.5 percent widening of the trade deficit.[3. Annual U.S. trade balance, from USITC DataWeb, is equal to the Total FAS Value of U.S. Domestic Exports minus the Customs Value of U.S. Imports for Consumption. GDP from the Federal Reserve Bank of St. Louis. Comparisons between 2014 and 2015 are in nominal terms. Longer-run annual comparisons are inflation-adjusted.] While the aggregate trade balance was relatively unchanged, the appearance of stability is driven by two underlying factors moving in opposite directions: a tremendous improvement in the balance of U.S. trade in fossil fuels, and a worsening deficit in just about everything else.

The U.S. trade deficit in Industrial Supplies and Materials: Fuels and Lubricants was cut roughly in half over the course of 2015. The shrinking deficit in this category was a function of dramatically lower energy prices decreasing the value of U.S. imports, in addition to higher export volumes from domestic petroleum producers. The U.S. export volume of crude oil and petroleum products increased by 14 percent in 2015 while the volume of imports increased by less than 2 percent, according to data from the U.S. Energy Information Administration. This sea change in U.S. energy trade has reshaped the structure of the U.S. balance of payments over the last five years. In 2011, fuels accounted for a third of the overall U.S. trade deficit. In 2015, it accounted for just 8 percent.

For products other than fossil fuels, the trade deficit widened by 13 percent compared to 2014. The year-over-year changes in the value of traded goods are shown below, broken out by type of good at the 1-digit level.

Outside of Industrial Supplies and Materials, the United States generally saw increased imports and decreased exports in 2015, particularly for consumer goods and automobiles. The short-term widening in 2015 was unsurprising and probably inevitable for two related reasons. First, the U.S. economy is growing and the balance of payments tends to worsen, all else equal, in years when consumption increases, as consumers simply have more money to spend. Because U.S. firms no longer produce many consumer products, rising expenditures on such products lead to expanding imports. In 2015, both nominal GDP and personal consumption expenditures increased by 3.4 percent.[4. U.S. Bureau of Economic Analysis. National Income and Product Accounts Table 2.3.5: Personal Consumption Expenditures by Major Type of Product.] Second and more importantly in this context, a stronger U.S. economy combined with economic weakness throughout the globe has led to a significant strengthening of the dollar against other major currencies.[5. Although China’s economy expanded more rapidly than the U.S. economy in 2015, its imports declined by 18 percent in 2015, in dollar terms. Nominal GDP of Japan and the EU expanded by 2.4 percent and 2.9 percent, respectively in 2015 (Federal Reserve Bank of St. Louis). Many other economies that supplied raw materials to China also experienced slower growth in 2015.]

Virtually all major global currencies weakened against the dollar in 2015. Comparing the annual average of daily exchange rates from the International Monetary Fund, the Euro weakened by 20 percent against the dollar, the Japanese yen by 15 percent, and the Mexican peso by 20 percent. Each of these weakening trends started at the end of 2014 and continued through most of 2015. Even the Chinese yuan, which is effectively fixed against the dollar by the People’s Bank of China at most times, weakened by 1.4 percent against the dollar in 2015, due to the PBC’s devaluation beginning in August 2015. In all likelihood, the U.S. economy is only beginning to the feel the full effects of the weakening yuan, which occurred too late in the year to have had a significant impact on the 2015 annual numbers.

Each of these exchange rate movements has weakened the competitiveness of U.S. exports, while making imports more attractive to the U.S. consumer. These trends had a major impact on the more granular developments shown in the graph below, which breaks out the 2014-15 changes in the U.S. trade balance, by type of end-use at the 2-digit level.

2015 Winners

The only big, big winner here is in Industrial Fuels (i.e., oil), discussed above. However, two other categories saw some improvement in their balance of payments.

Capital Goods related to Transportation, which consists primarily of non-military aircraft, saw a six percent increase in the value of its exports. 2015 was a good year for airlines, and apparently that has extended to aircraft manufacturing as well.

Industrial Supplies and Materials: Agricultural Goods, which includes cotton, tobacco, and other agricultural materials used for industry, saw an $11.4 billion improvement in the balance of payments. However, this development was driven entirely by lower imports, as U.S. domestic exports also decreased.

2015 Losers

The trade deficit widened for the majority of the USITC’s 2-digit categories. In particular, two categories saw large declines on both an absolute and relative basis.

The trade deficit in Automotive Vehicles, Parts, and Engines widened by $25 billion, or 14 percent. The widening trade deficit reflects a longer term trend, as can be seen in the increasing value of automotive imports since 2010, in real terms, as shown below.

Those familiar with the recovery of the U.S. automobile industry in recent years may find this surprising. However, the trend makes more sense when one considers Mexico’s growing importance to- and integration with- the U.S. automotive sector. While U.S. automotive imports from Mexico have increased by 66 percent, in real terms, since 2010, exports to Mexico have also increased by 45 percent. These hand-in-hand increases reflect the fact that automotive supply chains straddle the U.S.-Mexican border, with parts flowing both ways in the production process. From this point of view, increasing imports would be no cause for concern-as they merely reflect increased production on both sides of the border.

However, this position has become increasingly hard to justify. U.S. automotive imports from Mexico increased by $8 billion in 2015, while exports to Mexico increased by only $300 million. There is a growing wedge in the trade balance in U.S.-Mexican automotive manufacturing- a wedge that is likely to only grow worse with the significantly depreciated peso.

Another balance of payments loser in 2015 was Agricultural Foods– a category in which the United States typically runs a trade surplus. That surplus shrank from $33 billion in 2014 to $14 billion in 2015. China, Mexico, South Korea, and Japan alone account for roughly half of that decrease. For the East Asian countries, the change can be attributed solely to the decreased value of U.S. exports, as imports were either flat or insignificant to begin with. By contrast, the agricultural foods’ trade deficit with Mexico, which nearly tripled last year, was a result of both rising imports and falling exports. Lower export values are partially a function of plummeting commodity prices, but also are a result of the strengthening dollar, as U.S. agricultural products became relatively more expensive in foreign markets while foreign agricultural products became less expensive in the U.S. market.

2016 Outlook

Policy and structural changes in the economy can and do influence the long-run outlook of the U.S. trade balance. However, short-to-medium-term changes are driven primarily by changes in exchanges rates and consumption patterns around the globe. As such, the U.S. trade balance in 2016 will likely be a function of the strength of the U.S. dollar, whether the U.S. economy continues to grow, and the economic strength, or lack thereof, in other major economies, especially China. If the dollar’s appreciating trend persists, the U.S. economy has another year of decent-to-good growth, and the economies of China, Japan, and the European Union continue to show signs of weakness, expect the U.S. trade deficit to widen further in 2016.

Notes

]]>https://captrade.com/2016/03/reviewing-the-2015-trade-numbers/feed/0U.S. Trade Picture in 2015–Improvements in Petroleum Mask Weakness Elsewherehttps://captrade.com/2015/10/u-s-trade-picture-in-2015-improvements-in-petroleum-mask-weakness-elsewhere/
https://captrade.com/2015/10/u-s-trade-picture-in-2015-improvements-in-petroleum-mask-weakness-elsewhere/#respondThu, 29 Oct 2015 18:35:27 +0000https://captrade.com/?p=4268Growing U.S. oil and gas production and lower oil prices have reshaped U.S. petroleum trade. Although the United States still runs a deficit, the average monthly trade deficit through August 2015 is only $7.6 billion, compared to $35.1 billion through August 2008. This improvement is largely driven by imports. In 2008 through August, U.S. petroleum imports averaged $41.3 billion per month. By 2015, petroleum imports had declined to $16.3 billion per month. Despite lower unit values in 2015, U.S. exports have increased as the impact of higher export volumes more than offset the decline in price. Through August 2015, U.S. petroleum exports averaged $8.7 billion per month, compared to $6.2 billion per month during the same period in 2014.

As shown in the figure below, the petroleum trade deficit (excluding adjustments 1/) has shrunk by nearly $72 billion through August 2015 compared to last year. In contrast, the deficit in non-petroleum trade has expanded by nearly $81 billion relative to last year due to a combination of rising imports (+$5.9 bil./ mo.) and shrinking exports (-4.3 bil./mo.).

The increase in the non-petroleum deficit has been driven by slowing oversees growth, which not only leads to lower U.S. exports, but also to higher imports as foreign producers tend to increase their reliance on the U.S. market. The figure below shows that deterioration has occurred in all but one major end use category, industrial supplies, which contains petroleum.

Lower oil and gas prices globally have slowed the breakneck pace of U.S. investments in petroleum production. As a result, the shift toward balanced petroleum trade may be taking a pause. In contrast, the non-petroleum deficit continues to expand. Thus far, the trend toward “in-sourcing” has had a much more modest effect on trade flows than the fracking technology that unleashed the boom in U.S. petroleum production.

1/ Reflects seasonal and other adjustments made by the Census Bureau.

]]>https://captrade.com/2015/10/u-s-trade-picture-in-2015-improvements-in-petroleum-mask-weakness-elsewhere/feed/0The Trans-Pacific Partnership: Many Hurdles Remainhttps://captrade.com/2015/09/the-trans-pacific-partnership-many-hurdles-remain/
https://captrade.com/2015/09/the-trans-pacific-partnership-many-hurdles-remain/#respondTue, 01 Sep 2015 21:59:15 +0000https://captrade.com/?p=4096The Trans-Pacific Partnership (TPP) is a major free trade agreement currently being negotiated between twelve Pacific Rim nations. The talks grew out of a smaller agreement between Singapore, New Zealand, Brunei, and Malaysia nearly a decade ago, but have since expanded to include Australia, Canada, Chile, Japan, Mexico, Peru, the United States, and Vietnam. The TPP has received widespread attention due to its massive size and expansive scope. In addition to the participation of two of the globe’s three largest economies, the United States and Japan, the pact could eventually include South Korea, Taiwan, Thailand, and the Philippines, though these countries are not directly involved in the current negotiations. China, the elephant in the room for any Pacific trade pact, is not a party to the TPP talks and has only hinted interest, according to the Obama administration.

TPP negotiations are held in secret until a final deal is reached, a significant departure from prior FTA negotiations. Though many of the details remain unknown, the broad framework of the deal has been widely reported.

The Obama administration has actively sought the TPP as a part of its “pivot to Asia,” despite significant resistance from traditional Democratic constituent groups, especially labor unions. The administration overcame a major hurdle earlier this summer when it was granted ‘fast-track’ approval from Congress. Fast-track allows the administration to negotiate a final deal, which would then be brought to Congress for an up-or-down vote. Without fast-track status, members of Congress could have further amended the agreement after the negotiations concluded, making a deal all but impossible. U.S. Congressional approval, however, is not the last hurdle facing the TPP.

The most recent round of negotiations, held in Lahaina, Hawaii earlier this month, ended with negotiators unable to overcome familiar obstacles: dairy, automobiles, sugar, and various legal and regulatory provisions. In a joint statement released at the end of the Lahaina round, the TPP ministers claimed to be “more confident than ever that TPP is within reach” but did not set a date for further negotiations.

Three facts about the TPP standout from past U.S. trade agreements: its sheer size, the particular products included, and the scope of legal and regulatory provisions. The first point is perhaps the least important: the countries involved in the TPP include very large economies, but these economies already trade a great deal with each other. As is discussed below, it is unlikely that the TPP will radically reshape the aggregate flow of goods into and out of the United States.

However, what is ambiguous in the aggregate can be hugely important to particular industries or products. The TPP proposes to include a number of products, especially agricultural goods, that have traditionally been excluded from free trade agreements. Not surprisingly, these products have turned out to be key sticking points in the negotiations. Passage of many or even some of these agricultural items would be a significant step (forward or backward depends on your point of view) in the evolution of free trade agreements.

Finally, there are supra-national legal and regulatory provisions rarely seen in traditional trade agreements. TPP negotiators have set out to address areas that have little to do with reducing tariffs. Major issues include intellectual property rights, services, investor-state dispute settlement procedures, capital controls, and state-owned enterprises.[1. This list is drawn from Schott, Kotschwar, and Muir, “Understanding the Trans-Pacific Partnership,” Peterson Institute for International Economics, 2013.] In addition, China’s recent devaluation of the yuan has increased pressure for the agreement to address currency manipulation.

The Aggregate Picture: By the Numbers

The number 40 comes up often in summaries of the TPP, as its member countries comprise roughly 40 percent of world Gross Domestic Product (GDP) and 40 percent of U.S. exports and imports.[2. Trade figures come from the United States International Trade Commission’s DataWeb, comprising imports and domestic exports for all commodities. National macroeconomic estimates from the World Bank’s DataBank. Estimates of agricultural imports and exports are from the Food and Agriculture Organization of the United Nations, Statistics Division. FAO estimates for Crops & Livestock Products and Live Animals have been aggregated.]

From an American perspective, however, these figures may overstate the agreement’s potential importance. First, the United States makes up more than half of TPP members’ combined GDP. For Americans, the TPP would represent a trade deal with approximately 20 percent of the non-American global economy- not 40. Second, the U.S. already trades with most TPP members on fairly open terms. The United States signed and ratified the North American Free Trade Agreement (NAFTA) with Canada and Mexico two decades ago, and has since reached bilateral agreements with Australia, Singapore, and Chile (the Washington Post has a nice illustration of these interweaving agreements). The figure below demonstrates that disaggregating the NAFTA countries puts the TPP in a rather different perspective.

Excluding Canada and Mexico, the TPP countries represent approximately 10 percent of 2014 U.S. imports and exports. In absolute terms, these trade flows have been fairly flat over the past decade, but declined as a share of total U.S. trade, owing to increased U.S. trade with other economies, particularly China, Canada, and Mexico. Much of the current wrangling over the TPP is not so much about the level of U.S. imports, but the source of those imports, as the Mexican and Canadian governments are concerned about losing privileged access to the massive U.S. market.

Regarding the trade balance, you will notice that the shaded areas in the top graph above (U.S. imports) are much larger than those in the bottom graph (U.S. exports). This reflects the U.S. trade deficit, as the United States has imported about $1.90 of goods for every $1.00 it exported over the past decade (the 2014 ratio was approximately 1.7). The relative trade balances may explain why the Obama administration finds the TPP appealing- at least compared to other potential agreements. The U.S. trade deficit (measured as a percentage of total trade) with the non-NAFTA TPP countries is significantly less extreme than with the rest of the world and comparable to the U.S. deficit with its NAFTA partners.

Although the TPP would further integrate a significant share of the global economy, it is not clear how large an impact would be made by a regional agreement lowering tariffs that are already quite low by global standards. The figure below shows the Weighted-Average Applied tariff rate for all TPP countries alongside the OECD and World averages, as estimated by the World Bank. There are numerous ways that calculating a single average tariff measure can be misleading but it provides a broad sense of the aggregate level of trade protection a country employs. These estimates suggest that, on the whole, the TPP members are fairly open economies.

The international trade literature suggests that moderate tariffs have minimal welfare effects and, therefore, eliminating such tariffs does not make a significant difference.[4. Feenstra, Robert. Advanced International Trade: Theory and Evidence. Princeton University Press, 2004. p.217] This may particularly be the case for the United States, as it has already entered FTAs with several of the more protected TPP economies (Chile, Australia, and Mexico) and therefore has fewer opportunities for significant tariff reductions. The figure below graphs the value of U.S. trade with its 111 largest trading partners against the value of trade predicted by a basic version of the gravity model of international trade.[3. The gravity model uses the size of two countries’ economies and the distance between them to predict the value of their trade. The model employed here uses only distance, economic size, and year fixed effects as explanatory variables- academic research controls for many additional factors. In particular, this model uses only US trade data and thus cannot control for country-specific fixed effects. This shortcoming is illustrated by the considerable underestimate of trade with Singapore and Malaysia, both of whom trade disproportionately to the size of their economies. In sum, the specific estimates should be taken with several grains of salt, but the findings of this rudimentary model are generally similar to more rigorous work (see for example: Rose, Andrew. “Do We Really Know that the WTO Increases Trade?” 2003.) and serves as a reasonable illustration.] The specific estimates are rough but the model broadly reflects the relationship between trade, economic size, and physical distance. This graph demonstrates that the TPP members (shown in red) are trading with the United States at least as much as one would expect given the fundamentals, and perhaps a little more. It is unlikely that a free trade agreement would raise the red dots in this figure dramatically above the trend. In other words, you can make a Pacific trade pact, but you can’t get rid of the Pacific Ocean.

None of this is to say that the agreement is unimportant. Rather, it highlights the fact that the main points at issue in the TPP are more about particular products and supra-national regulatory details than across-the-board tariff reductions. In fact, about the only thing that both TPP supporters and detractors can agree on is that the TPP is not just about tariff reductions. The proposed agreement is believed to address intellectual property issues, state-owned enterprises, services, and other provisions not related to the trade in physical goods. Supporters like to say that these provisions make for an “ambitious, next-generation” or “high-quality” agreement. Detractors consider them to be nothing more than a “Corporate/Investor Rights agreement” dressed up in Free Trade clothing, or a “Trojan horse in a global race to the bottom.” Whatever one thinks of the debate, both sides are correct in pointing out that tariff reductions, in the aggregate, are not the most important component of the talks.

Agricultural Issues

Agriculture is one of the most difficult issues in FTA negotiations. It was at the center of the WTO’s failed Doha Round and is seen as “the major piece of unfinished business from previous trade rounds.” A primary difficulty for agriculture is that developing countries tend to have comparative advantages in agricultural products and the issue thus pits rich and poor countries against each other in the negotiations.

The dynamic is different for the TPP. With the significant exception of Japan, most TPP nations are either net exporters of agricultural goods or are fairly even in the balance between imports and exports. Compared to most countries (especially most developed countries) the TPP nations are more inclined to expand agricultural trade because a) they would benefit from increased exports and, b) their farming sectors are relatively more resilient to import competition. Excluding Japan, the combined TPP nations export $1.44 of agricultural goods for every dollar they import.

Also unlike Doha, there is not a clear rich-poor split in the agricultural trade orientation of TPP nations. There are rich net exporters (the United States, Australia, Canada, New Zealand) and poor net exporters (Vietnam, Peru); rich net importers (Japan, Singapore)and poor net importers (Mexico). For these reasons, one might expect agriculture to be less divisive for the TPP negotiations than other plurilateral trade agreements. That it has not been any less divisive suggests that the agriculture negotiations are not so much focused on across-the-board tariff reductions but the lowering of protections for particular products in particular countries.

The Japanese exception to the trends shown above is worth highlighting. Outside of China, Japan was the world’s largest net importer of agricultural products in 2012, when it imported approximately $20 of agricultural goods for every one dollar it exported. On this metric, Japan ranks globally alongside the likes of Mauritania and North Korea. Japan’s highly protected agricultural market is thus one of the major ‘prizes’ motivating countries’ participation in the TPP. However, it is unclear just how much liberalizing Japan is willing to do. Japan currently charges a 778 percent tariff on rice above a minimum-access quota, a 252 percent tariff on wheat, 360 percent on butter, and 328 percent on sugar.[5. Elms, Deborah. “Agriculture and the Trans-Pacific Partnership Negotiations.” Trade Liberalisation and International Co-operation: a Legal Analysis of the Trans-Pacific Partnership, ed. Tania Voon. 2013] Each of these falls under the “five sacred” products widely considered off-limits in Japanese politics and there has yet to be any clear indication of which products, if any, will see significant tariff reductions. One imagines that access to the Japanese market is the primary motivation for Vietnam’s interest in the TPP, and also for certain key interest groups in other countries. If Japan does not agree to significantly lower its agricultural tariffs, the enthusiasm of many pro-TPP actors could be severely diminished.

The Particulars: What do Japanese brake pads, Australian sugar cane, and New Zealand cheese have in common?

Negotiations over particular sectors can be difficult even if- perhaps especially if- the United States has already concluded free trade agreements with some of its major trade partners in those sectors. Auto-parts, sugar, and dairy products have proven to be significant stumbling blocks to the negotiations, with U.S. market access as the key sticking point. In each case, however, it is not only U.S. industry groups protesting, but also the United States’ NAFTA partners: Canada and Mexico.

In the automobile sector, U.S. negotiators agreed to a Japanese request regarding the trade of non-TPP origin automobiles and parts (a significant share of the components in Japanese cars are produced elsewhere in Asia, particularly China and Thailand). This led Canadian and Mexican auto-parts makers to send a joint letter to their respective trade ministers to reject the provision, in hopes that they not lose out on privileged access to the U.S. market.

Australian negotiators have been focused on gaining greater access to the U.S. sugar market. The situation is complicated by the fact that the U.S. and Mexican governments recently concluded an agreement governing the amount of Mexican sugar allowed into the United States (Capital Trade’s Seth Kaplan served as an expert for the Mexican industry in the case before the U.S. International Trade Commission). Increased Australian access could take up market share from the United States, Mexico, or both.

Triangulating the state of dairy negotiations is particularly interesting. The U.S. industry has nothing to gain from allowing greater market access to major producer New Zealand. However, the U.S. dairy lobby officially supports the TPP , in large part because it hopes to gain greater access to the Canadian market in the process. Canada has numerous dairy protections that survived both the U.S.-Canada Free Trade Agreement and subsequent NAFTA agreement. Canadian “intransigence” on this issue inspired a letter from 21 members of Congress to the Canadian government. One assumes that Congressional support from say, Wisconsin, will hinge on the Canadian position.

That agricultural products have become major obstacles in the negotiations comes as little surprise. Indeed, the Peterson Institute’s policy analysis Understanding the Trans-Pacific Partnership, published in January 2013, lists dairy and sugar as item numbers 1 and 2 in its chapter: “Sticking Points to the Negotiations.” Whether compromise on these issues is- or ever was- possible remains to be seen.

Legal and Supra-National Regulatory Provisions: Toward a Brave New World

As argued above, the expected legal and regulatory provisions of the TPP are perhaps the most significant aspect of the agreement. The most contentious of these provisions, according to Schott, Kotschwar, and Muir, are intellectual property rights (including the difficult issue of pharmaceutical copyrights), services, investor-state dispute settlement procedures, capital controls, and state-owned enterprises.

These issues are too complex to analyze in any detail here, but consider one key characteristic of the TPP that makes negotiations so difficult: the economic diversity of its member countries. The figure below charts the 2014 per capita GDP of the TPP countries.[6. These amounts are in nominal terms because trade takes place in nominal dollars- not Purchasing Power Parity-adjusted dollars.] Not only is there a wide range from top-to-bottom, there is also a major gap in the middle between Chile and Japan. In regards to their level of economic development, TPP countries are both diverse across the board and split down the middle. One can expect heterogeneous policy preferences from a group that includes Vietnam, Brunei, and Canada.

Diversity can be a motivator for trade if there are complementary comparative advantages (for example, India exports labor-intensive goods to Germany and Germany exports capital-intensive goods to India). However, this is not at all the case for regulatory provisions. For example, why would Vietnam agree to restrict the actions of its state-owned enterprises? Why would Peru want to protect U.S. pharmaceutical copyrights? The only plausible answer is that these provisions are a part of tit-for-tat exchanges inherent to these types of negotiations. Such exchanges can make sense, on paper, but this makes for a complex coordination game between the negotiators and a single domino falling can have effects in seemingly unrelated areas. For example, if Japan balks on granting access to its rice market, is Vietnam really motivated to regulate its state-owned enterprises? If not, is the U.S. going to make concessions to Vietnam on textiles? What will Peru think of a deal without U.S. textiles concessions? And so forth.

In view of the above, it should come as no surprise that the administration is having trouble closing the deal on the TPP. Fresh off its victory in passing fast track, the administration now faces a different kind of track, with hurdles both familiar (sugar and dairy) and novel (regulatory tradeoffs among multiple countries). The TPP is a new age trade agreement that goes well beyond import duty reductions. It turns out that concluding such agreements on a plurilateral basis is extremely difficult–and maybe even impossible.

Notes

]]>https://captrade.com/2015/09/the-trans-pacific-partnership-many-hurdles-remain/feed/0CapTrade Authors Reports on Gulf Airlines’ Subsidieshttps://captrade.com/2015/09/capital-trade-authors-reports-on-subsidies-received-by-three-gulf-airlines/
https://captrade.com/2015/09/capital-trade-authors-reports-on-subsidies-received-by-three-gulf-airlines/#respondTue, 01 Sep 2015 14:41:03 +0000https://captrade.com/?p=4197On August 24, 2015, The Partnership for Open and Fair Skies released Response to the Gulf Airlines’ Comments on Subsidies Valuationsa follow-up to the January 25, 2015 report Evidence of Actionable Subsidies Received by Etihad Airways, Qatar Airways and Emirates Airline. Both reports were prepared by Charles Anderson of CapTrade and are detailed below.

The initial report, which has been described as “a remarkable piece of detective work” by The Economist (April 25th, 2015), documents the subsidies bestowed on Etihad Airways, Qatar Airways, and Emirates Airline, by their respective governments. The study quantifies the benefits using standard WTO/ U.S. government subsidy calculation methodologies. All told, the actionable subsidies received by the three Gulf Airlines amount to over $40 billion. Among the forms of benefits found are government equity infusions, interest free, non-repayable “loans,” loan guarantees, debt forgiveness, the provision of goods and services (including airport facilities) at less than adequate remuneration, tax exemptions, and assumption of promotional expenses. Copies of the report, as well as additional information and back-up documents can be found below and at the Partnership for Open and Fair Skies website.

The follow-up CapTrade report, Response to the Gulf Airlines’ Comments on Subsidies Valuations, dated August 24, 2015, is also available below and at the Partnership for Open and Fair Skies website. The follow-up report addresses the criticisms of the original CapTrade report made by the three Gulf airlines and presents evidence of new subsidies received by Etihad.

There is a tendency to view China’s 1.9 percent devaluation of the Yuan on August 11 through the lens of the U.S. dollar. After all, the Yuan has been fixed or closely linked to the greenback for decades, and Washington has been among the most vocal critics of China’s currency policy.

However, currency and trade data suggest that China’s devaluation has more to do with the other currencies. While the Yuan has appreciated by one third versus the dollar since China broke its link to the dollar in July 2005, the Chinese currency has appreciated even more against other currencies, as shown below.

Source: OANADA

The difference is even more pronounced if the comparison is limited to the past 5 years. Because the Yuan has remained closely tied to the U.S. dollar, the dollar’s broad appreciation has led the Yuan to appreciate substantially versus other currencies, including the Euro, the Yen, and the Australian dollar.

Source: OANADA

Versus some currencies, such as the Australian dollar, the strong Yuan is beneficial because it reduces the cost of imported raw materials. But against other currencies, such as the Euro, Yen, Vietnamese Dong, and the Mexican Peso, the strong Yuan harms China’s export competitiveness. For example, China has been the primary supplier of athletic footwear to the U.S. market. But as shown in the figure below, the value of U.S. imports of footwear from China has been stagnant while imports from Vietnam have been growing.

When Commerce dropped India from the China surrogate country list in June of 2011, the field for surrogate countries was opened up. Up until that time, India regularly served as the principal surrogate country for China AD cases. In 2014, Thailand remains the most popular choice as principal surrogate, with Philippines and Indonesia being the only other countries used with any regularity. Difficulties in obtaining surrogate values for the other countries on the list — especially usable public financial statements — have limited their use. For Vietnam, the other major NME country investigated by Commerce in 2014, India remains on the list of economically comparable countries, but increasingly in the recent past has been bypassed in favor of other countries, such as Bangladesh and Indonesia.

In December 2014, Commerce released its new list of surrogate countries for China. Neither Indonesia nor the Philippines are on the new list, meaning that Commerce and parties in China NME cases will face increasing difficulties in finding usable surrogate countries on the official list, outside of Thailand. Perhaps reflecting these new difficulties, Commerce has begun to allow more countries not on the list to serve as surrogate countries.

The following is a list of surrogate countries used in investigation, review and new shipper finals that were completed in 2014 (not including cases that went AFA or had no shipments).

* South Africa (not shown) was used in one case.

Final China Surrogate Country Power Rankings for 2014

1. Thailand (10)

Thailand maintained its number one position for a second straight year.

As in 2013, 10 Chinese cases used Thailand as the primary surrogate in 2014, though the number of Chinese final determinations that used a surrogate country increased from 24 in 2013 to 28 in 2014.

The other two products which contributed to Thailand’s dominance were crawfish tail meat and 1,1,1,2-Tetrafluroethane (a refrigerant).

Financials for companies not listed in the stock market are publicly available in Thailand as they are in India, which, along with a diverse manufacturing base has catapulted Thailand to the top of the list and kept it there.

2. Philippines (9)

The Philippines surged past Indonesia into second place on the chart and almost caught Thailand at the top of the table with 9 cases choosing it as the primary surrogate.

In 2013, the Philippines was already used more often than Indonesia for China cases and this trend intensified in 2014.

Consumer products such as wood flooring and wooden bedroom furniture used Philippines as the primary surrogate.

Activated carbon and chlorinated isocyanurates are chemical products which used the Philippines.

Philippines was the primary surrogate country for industrial products such as pure magnesium and aluminum extrusions.

Fresh garlic was an agricultural product which used the Philippines for its review this year.

Non-stock market listed company financials are publicly available in the Philippines adding to its appeal.

As of 2014, Philippines no longer shows up on the surrogate country list for China, so it unlikely that it will hold on to its place near the top if the table in 29015.

3. Indonesia (5)

Indonesia drops to third place, serving as the primary surrogate 4 times for China and once for Vietnam.

For frozen fish fillets from Vietnam, Indonesia remains the surrogate country of choice.

Two citric acid reviews were completed in 2014 and both used Indonesia as the primary surrogate.

The 2011-2012 PET film review and the monosodium glutamate investigation also used Indonesia.

Indonesia could be set for a further tumble in 2015 as it is no longer on the list of economically comparable countries for China, though it was still used for Vietnam despite dropping from Vietnam’s surrogate country list.

4. India (3)

India climbs to fourth on the chart as it was used in 3 cases up from a single case a year ago.

Two Vietnamese cases used India: Welded Stainless Pressure Pipe and OCTG. It was also used for the Steel Nails preliminary. so India seems to be the primary Vietnamese surrogate for steel products.

India is no longer on the surrogate country selection list for China cases, but it was used for the 1-Hydroxyethylidene-1, 1-Diphosphonic Acid 2012-2013 review. In that case, none of the listed countries were considered significant producers of comparable merchandise and the only country parties submitted information for was India.

5. Ukraine (1)

A tough year for Ukraine as it drops a spot in the power rankings. Ukraine was used in only a single case in 2014, compared to 3 in 2013.

While graphite electrodes continued to use Ukraine as the primary surrogate country, the silica bricks investigation went negative at the ITC final.

The other case which used Ukraine in 2013 was fresh garlic which shifted to the Philippines for its review concluded in 2014.

6. Bulgaria (1)

Bulgaria was only used in a single case in 2013 – the hardwood plywood investigation which went negative at the ITC.

However, despite that setback, Bulgaria found some favor in the Frontseating Service Valves annual review to maintain its position on the chart as a viable surrogate country.

7. Bangladesh (1) (NEW ENTRY)

Bangladesh has been used in the Vietnamese Frozen Fish Fillet and Frozen Warmwater Shrimp cases in the past and returns thanks to its use in the 2012-2013 review of shrimp.

The 2011-2012 shrimp review used Indonesia as the primary surrogate country so it will be interesting to see if Bangladesh can continue its comeback in 2015.

8. Romania (1) (NEW ENTRY)

Romania has only been used in a single case – a Fresh Garlic new shipper review.

Given that Ukraine seemed out of favor in the Fresh Garlic administrative review and Philippines is no longer on the China list, 2015 could see Romania work its way up the chart.

9. South Africa (1) (NEW ENTRY)

South Africa almost made this list last year as it was used in the preliminary stage of an Chlorinated Isocyanurates review, but in the final the Department opted for the Philippines.

However, the sun must be shining in South Africa as it was the primary surrogate for the recently completed solar investigation Certain Crystalline Silicon Photovoltaic Products.

New Lists for 2015

As 2015 begins, the U.S. Department of Commerce has published its new list of surrogate countries in several China antidumping cases (see one below), based on the 2013 World Bank GNI data released in December 2014. Two new countries – Romania and Ukraine – were placed on the list while Colombia and Indonesia were dropped. Ukraine is returning to the list after a short absence while Romania as mentioned above was used in the Fresh Garlic new shipper review last year.

The power rankings for 2014 above show that Commerce did not use Colombia as a primary surrogate country in the last year, so it is not surprising that it would drop off the list in favor of Romania or Ukraine which have been used in recent cases.

The elimination of Indonesia is akin to the dropping of the Philippines last year. As shown above, both Indonesia and the Philippines were a popular choices in China cases in 2014. Looking ahead to 2015, Indonesia has been used again in a Frozen Fish Fillets from Vietnam final just this month, so its place in the power rankings table is secure. It is just a matter of how often will Indonesia be used in 2015. In comparison to Indonesia and the Philippines, Romania and Ukraine, former NMEs themselves, have been used relatively few times. The continued appearance of Ecuador on the list is also puzzling since it has never been used in a case. To be honest, it is unclear if any other countries between the GNI per capita bookends of Ukraine and Romania are good data prospects. All the more reason why the elimination of Indonesia and even Philippines from the list is puzzling, as they have been proven to have good data availability and produce a large number of products.

If the Philippines experience from last year is anything to go by, not to mention the use of India in the 1-Hydroxyethylidene-1, 1-Diphosphonic Acid review and the use of Indonesia for Vietnam, the Department appears to be prepared to go off list on a case-by-case basis. So we should not be surprised to see the continued use of Indonesia and the Philippines (and even India), though a continued migration to Thailand or a shift to Eastern Europe may be on the cards as well. Indeed, Thailand may become the new “India” for China cases.